Last reviewed: 3 October 2026
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The ability-to-repay rule and qualified mortgages
Before most lenders make you a mortgage, federal rules say they must decide in good faith that you can pay it back. This page explains that rule and the “qualified mortgage” label, using the CFPB’s and the regulation’s own words.
What this term means: The ability-to-repay rule is a federal requirement, in Regulation Z at 12 CFR § 1026.43, that a lender make a reasonable and good faith decision, at or before consummation (the regulation’s term for the point at which you become obligated on the loan), that you can repay the loan on its terms.[2] The regulation calls the lender the “creditor.” A qualified mortgage (QM) is a loan that meets extra standards in the regulation and carries a legal protection for the lender, described below.
What the rule requires
The CFPB says lenders cannot use only an introductory or “teaser” rate to decide whether you can repay.[1] If a mortgage has a low rate that goes up in later years, the lender has to make a reasonable effort to work out whether you can pay the higher rate too.[1]
The regulation lists what a lender must consider when it makes this decision, with exceptions set out elsewhere in the section.[2] The list is in the table.
| Item the regulation lists | What the regulation says |
|---|---|
| Income or assets | Your current or reasonably expected income or assets, other than the value of the dwelling that secures the loan.[2] |
| Employment status | If the lender relies on income from your employment, your current employment status.[2] |
| The new loan’s payment | Your monthly payment on the loan being made.[2] |
| Other loans made at the same time | Your monthly payment on any simultaneous loan the lender knows or has reason to know will be made.[2] |
| Mortgage-related obligations | Your monthly payment for mortgage-related obligations.[2] |
| Other debts and support | Your current debt obligations, alimony and child support.[2] |
| Debt-to-income or residual income | Your monthly debt-to-income ratio or residual income.[2] |
| Credit history | Your credit history.[2] |
The regulation’s commentary says its rules do not provide comprehensive underwriting standards, so lenders may use their own standards as long as they consider the listed factors.[2] It adds that a consumer’s own statement that they can repay the loan is not indicative of whether the lender’s decision was reasonable and in good faith.[2]
What a qualified mortgage is
The regulation says a lender that makes a qualified mortgage that is not a “higher-priced covered transaction” complies with the repayment-ability requirements. This is often called a safe harbor.[2] For a higher-priced covered transaction that is a qualified mortgage of the general, agency, small-creditor or paragraph (f) types, the lender is presumed to comply.[2]
The regulation defines several kinds of qualified mortgage.[2] The “general” kind has these features, among others:
- Regular periodic payments that are substantially equal, except for the effect of interest-rate changes on an adjustable-rate or step-rate loan.[2]
- Those payments may not increase the principal balance. They also may not defer repayment of principal or result in a balloon payment, except as provided in paragraph (f).[2]
- A loan term of no more than 30 years.[2]
- Total points and fees within the amounts in paragraph (e)(3).[2]
- An annual percentage rate (APR) that does not exceed the average prime offer rate for a comparable transaction, as of the date the rate is set, by the amounts the regulation lists.[2]
Other kinds of qualified mortgage are defined separately, including loans that the Department of Housing and Urban Development, the Department of Veterans Affairs or the Department of Agriculture define as qualified mortgages under their own programs.[2] The regulation also has separate definitions for small-creditor portfolio loans and seasoned loans.[2] This page does not walk through those types.
The points-and-fees limit
The CFPB says only qualified mortgages have a limit on points and fees.[3] It also says the mortgage rules only stop a lender from making a loan when the borrower does not have the ability to repay it.[3] The caps are in our guide to points and fees limits on qualified mortgages.
Where the rule does not apply
The regulation says the section applies to any consumer credit transaction secured by a dwelling, other than, among others, a home equity line of credit subject to § 1026.40 and a mortgage secured by a timeshare plan.[2] For the repayment-ability provisions in paragraphs (c) through (f), it also exempts, among others, a reverse mortgage subject to § 1026.33 and a temporary or “bridge” loan with a term of 12 months or less.[2] The commentary says the section does not apply to credit extended primarily for a business, commercial or agricultural purpose, even if a dwelling secures it.[2] The regulation lists further exemptions. Read the section for the full list.
How to verify this yourself
Open the CFPB’s page on the rule and the regulation text in the reference list. They are the source for every statement above. The regulation page also carries the official commentary. You can ask your lender in writing whether your loan is a qualified mortgage and under which part of § 1026.43. A HUD-approved housing counselor can help you read the answer (see how to find one). Our questions to ask your loan officer and non-QM lending guide cover related ground. How we check originators is described in our published standard; it does not grade loan products.
What this page does not cover
This page is general information, not legal advice. It does not say whether any loan is a qualified mortgage or whether a lender followed the rule in your case. It does not cover every kind of qualified mortgage, every exemption, or how courts treat disputes. The CFPB page was last reviewed 3 April 2024. The regulation text was read on 3 October 2026 and can change. This page was last reviewed 3 October 2026.
Your next step
Read the table above against the papers your lender asked you for. If you have a question about your loan, put it to the lender in writing and keep the reply. For related guides, return to the Mortgage help library.